As investors are being blitzed with reports of bleak economic news and widespread stock sell-offs on Wall Street, Raymond James & Associates Thursday offered an encouraging word to energy companies: energy stocks are “at or very near the bottom point.”

Even prior to last week’s terrorist attacks, Raymond James’ analysts predicted that “several emerging events” — weakening natural gas prices, October year-end tax loss selling by mutual funds, slowing global economies and potential broader market declines — were likely to put “downward pressure” on a “psychology-driven” energy market, and that these events were likely to “crescendo in the October timeframe.”

The attacks and the “events that have precipitated from the World Trade Center destruction have accelerated this anticipated downturn, and at the same time, have introduced several possible new positive catalysts to the energy markets. Accordingly, we think we are either at or rapidly approaching the bottom in the energy stocks in the next several weeks,” said Raymond James in an “Energy Industry Brief.”

The picture for energy stocks improved somewhat on Thursday from Wednesday’s almost total list of losses. Possibly a much as a third of natural gas and power-related stocks in every category gained slightly Thursday, according to a quick survey by NGI. The list of gainers was led by PG&E Corp., whose Pacific Gas & Electric subsidiary announced a bankruptcy reorganization plan. PG&E was up 8.41% to $15.72. Enron also reversed course, gaining 7.50% to $28.39, after falling earlier in the week. AES also rebounded 5% to $24.32.

ExxonMobil continued its steady decline with another 3% and change drop. BP also dropped 3.41% to $45.54, while Shell continued to reap the reward for lowering its production forecasts, as its stock fell 6.74% to $44.81. Among independent producers results still were mostly down, but very moderately, and some even managed to show some black ink, also moderately. The same was true of gas and electric utilities, as some of the largest, such as Duke, Southern and Reliant recorded small gains.

The “positive catalysts” for natural gas prices that are emerging include the probability of oil supply disruptions, particularly in the longer term; signs of a fall-off in gas production later this year, which would lead to tighter supplies; and a drop in storage inventories beginning in January 2002, according to the Raymond James report. It further believes that reports have been greatly “overblown” about the impact of a slowing economy on energy.

Merrill Lynch analyst Donato Eassey reported “relatively few sectors have fared worse than energy” as the broader market has weakened. “And while we recognize that lower gas and oil prices are a real risk should a sustained economic downturn occur, this is clearly not our expectation.” He cautioned, however, that not all energy companies should be “indiscriminately painted with the same broad brush.”

During this time of economic uncertainty, Eassey said he continues to view the energy merchant companies as being oversold and possessing “substantial long-term investment opportunities.” This group of companies includes Duke Energy, Dynegy, El Paso Corp., Enron Corp., Williams, Reliant Energy, American Electric Power, CMS Energy, Dominion Resources and UtiliCorp.

“While certainly not immune to these dynamics, the [energy merchants’] diversified operations throughout the energy value chain (regulated and non-regulated alike) should help provide a ‘shock-absorbing’ ability to earnings,” he said. “With 15% growth in ’02 expected to be intact even in a relatively flat economic environment, we gauge the [Energy Merchants] to now be the least expensive they have been in nearly 10 years. Consider that as a group, Dynegy, El Paso, Enron and Williams trade at an average [2002 estimated] P/E of 11.7x, below its prior floor of 14.2x in ’95, and 42% below the 20.6x group average since ’93.”

Overall, Merrill Lynch sees a “positive stimulus from: 1) continuing volatility in gas and power prices, which should create additional risk management as well as energy trading opportunities; 2) high confidence in the long-term natural gas cycle; 3) winter around the corner; 4) strong earnings growth relative to a lackluster broad market; 5) increased [mergers and acquisitions] with declining cost of debt; and 6) the potential resolution of California issues.”

While nearly every Energy Merchant looks “enticing at current levels, we would particularly focus on the two that we believe have the least amount of near-term ‘noise,’ notably Williams and Dynegy, with each trading at [an] historically low valuation,” Eassey said.

Carol Freedenthal, principal in Houston-based Jofree Corp., isn’t as optimistic. He expects to see much lower energy demand, reduced energy prices and weaker third-quarter earnings from companies. “You have to start with one basic premise, and that is energy consumption is directly tied to the economy. “If the demand for industrial products weakens, then so too does the demand for energy,” he said, “unless we get a super cold winter starting tomorrow.”

Even with a multi-billion dollar aid package for the airlines and other economic measures, Freedenthal seriously doubts that the Bush administration and Congress will be able to “reverse the economic slide fast enough.”

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